Demographic change is altering the complexion of the U.S. population as well as its rate of growth. These trends clearly have important repercussions for the wine market and have received considerable attention in the wine business literature.
Nonetheless, I would argue that the scope and magnitude of the issue is not particularly well understood. The purpose of this entry is to clarify the key demographic trends that are occurring and the relationship between demographics and wine demand, as well as to provide some insight into the potential implications of demographic change for the U.S. wine market.
In this piece, I’m casting the term demographic change in a narrow sense and focusing mainly on changes in the U.S. population’s rate of growth, age distribution and racial/ethnic composition. I’ll touch on generational change as well, which is an overlapping concept that also encompasses differences in behavior, preferences, and financial circumstances across generations.
The Three Key Demographic Trends
Population Growth is Decelerating
The growth rate of the U.S. population has been slowing gradually for decades and reached an eighty-year low of 0.6% in 2018. This compares to rates of near 1.4% during the early 1990s and 1% as recently as the mid-2000s. The deceleration has mainly been attributable to a declining birth rate though slowing immigration has also contributed.
Growth will continue to slow going forward due to a further decline in the birth rate coupled with a rising death rate as the population ages. Immigration will become an increasingly important driver of our nation’s growth.
The 21+ population grew at a faster pace of nearly 1.2% per year during the first 12 years of the 21st Century due to immigration and a boost from the large Millennial Generation as it reached adulthood. However, growth began to decelerate in 2013 as the Millennial peak passed age 21 and growth in the adult population fell to just 0.88% in 2018.
The number of Americans reaching age 21 is expected to remain steady over the next ten years, but growth in the adult population will continue to slow gradually due to the rising death rate. The U.S. Census Bureau’s most recent population projections (2017 Vintage) suggest that growth in the adult population will slip by two-tenths of a percent by 2028.
Immigration is the biggest wildcard, and the projections likely do not fully account for the Trump administration’s abrupt policy shift. In fact, recent population estimates indicate that growth decelerated more sharply than anticipated in 2017 and 2018 so the projections may represent an optimistic scenario for growth, which can be seen by the uptick in 2019 where the data switch from estimates to projections.
America is Graying
The median age of the U.S. population has increased steadily from 33 in 1990 to 38 in 2018 due to slowing fertility and increasing life expectancy. But aging hasn’t progressed in a straight-line manner due to generational size differences. For example, the large Baby Boom Generation caused the 55 to 74 population to swell by 14 million between 2010 and 2018. Conversely, the 40 to 54 segment contracted by 4.5 million as the smaller Generation X took the boomer’s place. The 20 to 39 population expanded by six million as the larger Millennial Generation reached adulthood.
Going forward, America will continue to gray with the median age rising to 40 by 2028. The 65+ segment is projected to surge by nearly 18 million as the last of the boomers reach retirement age and older Americans will constitute the fastest growing demographic segment.
Growth in the 21-64 population will be modest, with the gain driven entirely by the 35 to 49 age segment as the millennials reach middle-age. The 50 to 64 population peaked in 2017 and will contract over the next ten years as Gen X replaces the boomers. And the young adult population is nearing a peak as Generation Z, which begins turning 21 next year, is slightly smaller than the millennials.
The U.S. Population is Becoming More Diverse
The Non-Hispanic White population (“white”) has seen relatively little growth over the past two decades and its share fell from near 70% in 2000 to 60% today. Conversely, the combined population of all other racial/ethnic groups (“nonwhite”) has grown rapidly due to a combination of higher birth rates and immigration.
Hispanics alone accounted for well over half the nation’s growth between 2000 and 2018 and now comprise 16% of the total. The Asian population grew at an even faster rate, though its share is just 6%. The Black population is still far larger but is growing at much slower rate.
Growing racial diversity is a near certainty, even if immigration slows. In fact, the white population is projected to peak within 5 years – so racial/ethnic minorities will soon account for all growth.
The nonwhite adult population is projected to grow by 19 million over the next ten years, which represents 90% of the total increase. Hispanics will account for a full 50%. The nonwhite population will expand across all age segments. Conversely, the adult white population will increase by only 2 million. The 65+ white segment will expand rapidly due to the aging boomers and the 35 to 49 population will grow modestly as the millennials displace Generation X, but the white 50 to 64 age segment is set to contract by seven million.
In sum, the Census Bureau projections paint a picture of a slowly growing and rapidly aging white population juxtaposed by a younger and faster growing nonwhite demographic. This will lead to a an older and more diverse pool of potential wine drinkers, although the shift will be relatively gradual.
The nonwhite share will increase by 4% to 40% and nearly one in five potential wine drinkers will be of Hispanic origin in 2028. A full 27% of potential wine drinkers will be 65 or older, compared to 21% today. Nearly three-quarters of the 65+ population will be white, but the young adult segment will be split evenly between whites and minorities – one in four will be Hispanic.
Demographics and Wine Demand
From a macro perspective, demographics are linked to wine demand in two ways. First, wine consumption is a function of the size of the adult population – if population growth slows – then growth in wine demand must also slow unless consumption per person rises. Second, wine demand is linked to the composition of the population because consumption and expenditures vary across demographic segments. Thus demographic change has the potential to alter per-capita consumption.
The relationship between demographics and wine expenditures is summarized in the table below. The metrics are based on public use micro data from the Bureau of Labor Statistics’ consumer expenditures survey (CES), which tracks the daily spending habits of approximately 6,000 households over a two-week period. Households are grouped into demographic categories based on the attributes of the person answering the survey. The metrics should be considered as rough estimates as the CES has several well known limitations and margins of error are high, particularly for small demographic segments.
The CES data indicate that households headed by young adults spend the least on wine. Based on the current distribution of spending across five-year age segments, wine expenditures appear to rise rapidly during the late twenties through the forties, then peak in the fifties and early sixties, and begin to decline at a modest pace in the late 60s.
The variations across racial/ethnic groups are even more striking. White households report spending more than twice as much on wine than non-white households overall. The spending differential varies across racial/ethnic groups but is substantial in all cases.
The Demographic Tailwind is Subsiding
These patterns suggest that a strong demographic tailwind boosted the wine market as the Baby Boom Generation matured into their peak spending years and the millennials fueled growth in the adult population. The tailwind is now subsiding as the boomers have passed the peak and the millennial tide is receding. Growing diversity will play a more prominent role going forward.
In order to illustrate the potential impacts of demographic change, I developed some simple back of the envelope projections to 2028 using the Census Bureau’s population projections and CES data. This is not intended to be a demand forecast as demographics are just one of many factors that influence wind demand.
The results suggest that demographic change has negative implications for the U.S. wine market. If the 21+ growth rate and per capita consumption were to remain constant, wine consumption would grow by about 10% over the next ten years. The expected slowdown in population growth has only a modest impact because it is so gradual – reducing the increase to 9% - though this is based on optimistic immigration assumptions.
Changes in the composition of the adult population are potentially more important. If age/race-specific spending rates were to remain constant, demographic change would cause per capita wine expenditures to decline by about 2.5% by 2028. This is mainly due to the declining white share of the adult population.
The combined effect of slowing population growth and declining per capita spending would reduce growth in wine expenditures to about 6% (in constant dollars) over the next ten years. Thus, this admittedly crude analysis demonstrates that demographic factors are a net negative, but they don’t appear to be powerful enough to derail the wine industry’s expansion by themselves.
Other factors, including changing economic conditions, shifting attitudes towards alcohol consumption, and competition from alternative alcoholic beverages and cannabis have the potential to move the needle much faster. Generational change will also be important. For example, even if their desire for wine is the same, the millennials may spend less than Gen X at the same age because of their shakier financial position.
Demographic change clearly represents an important challenge for the wine industry. Nonetheless, because it is more predictable than other demand drivers, strategies can be implemented to address it. The fact is that the composition of the pool of potential wine consumers is evolving and growth in the adult population is slowing – if you haven’t adjusted to this yet – the time to do so is now.
This exercise highlights some obvious opportunities for wineries and the wine industry. For instance, Hispanics represent nearly 16% of the U.S. population but account for just over 7% of wine spending. This is partly due to lower average ages and incomes – but also because Hispanics typically spend a smaller share of their alcohol budgets on wine. Young adults and other minority groups are similarly under-represented. Any closure in these spending gaps would be a boon for the industry.
Moreover, demographic change will not impact all segments of the market equally. In-depth market research will be required to sort out how these trends will play out across sales channels, varietals, styles, price points, and geographies.
Wineries will need to be both creative and market-driven if they are to realize these opportunities and continue to thrive in a slower growth and more competitive market environment.